Does the Pullback in Novo Shares Present an Opportunity After Recent Obesity Drug Approval?

Trying to decide what to do with Novo Nordisk stock? You are not alone. While shares have been on a wild ride lately, there is a lot beneath the surface that is worth unpacking. Just in the past week, the price has risen 4.1%, pushing further gains after a month that saw a 4.5% increase. It is easy to see why investors are paying attention, especially with the market constantly reevaluating risk and reward here.

Zooming out, though, the story gets more complicated. Novo Nordisk is still far from its highs, with the stock down 32.0% year-to-date and a staggering 51.6% lower than one year ago. Despite those drops, the five-year return comes in at a strong 80.2%, showing that those who held on long term have fared well. Some of these moves can be traced to shifting investor sentiment around pharmaceutical innovation and ongoing developments in the global healthcare sector. News about strengthening drug pipelines and broader adoption of certain treatments has definitely played a role in changing how the market values this company’s future potential.

So, is Novo Nordisk still undervalued or is it finally fairly priced? According to a valuation score based on six separate checks, Novo Nordisk is undervalued in five of them, giving it a score of 5. That is a strong indicator in its favor, at least on paper.

Let’s dig deeper into what these valuation checks tell us, and whether there is an even smarter way to judge Novo Nordisk’s true worth at the end of the day.

Why Novo Nordisk is lagging behind its peers

Approach 1: Novo Nordisk Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model aims to estimate a company’s intrinsic value by forecasting its future cash flows and discounting them back to their present value. For Novo Nordisk, this method uses a two-stage Free Cash Flow to Equity approach with all amounts reported in Danish Krone (DKK).

As of the last twelve months, Novo Nordisk generated a Free Cash Flow (FCF) of 68.4 billion DKK. Analyst projections estimate strong growth, with free cash flow expected to nearly double over the next decade. By 2029, FCF is forecasted to reach 141.5 billion DKK, and extrapolations out to 2035 suggest the company could generate more than 227 billion DKK in free cash flow annually.

Using these projections, the DCF model calculates an intrinsic value of 172.93 USD per share. This is substantially higher than Novo Nordisk's recent share price, which implies the stock trades at a 65.6% discount to its fair value according to this model.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Novo Nordisk.

Our Discounted Cash Flow (DCF) analysis suggests Novo Nordisk is undervalued by 65.6%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Novo Nordisk Price vs Earnings

The preferred valuation metric for profitable companies like Novo Nordisk is the Price-to-Earnings (PE) ratio. This measure is popular because it connects a company’s market value directly to its ongoing earnings, making it a clearer choice when consistent profits are present. Analysts look to the PE ratio to gauge how much investors are paying for each dollar of current earnings, but it is important to remember that growth expectations and company risk play a big part in determining what a “fair” PE ratio ought to be. Higher-growth or lower-risk companies can justify higher PE ratios, while slower-growing or riskier ones should trade lower.

Right now, Novo Nordisk trades at a PE of 15x. That is below both the Pharmaceuticals industry average of 18.44x and the average PE of its close peers, which is 24.41x. At first glance, this suggests the stock may be undervalued relative to other companies in the sector. However, the real question is whether these broad comparisons truly take into account Novo Nordisk’s unique strengths and risks.

This is where Simply Wall St’s “Fair Ratio” comes in. It provides a custom benchmark for Novo Nordisk, factoring in specific attributes like the company’s expected earnings growth, profit margins, industry landscape, market cap, and risk profile. This makes it a more reliable yardstick than just measuring against industry multiples or peer averages. For Novo Nordisk, the Fair Ratio is calculated at 33.02x, a substantial premium to its current 15x multiple.

Comparing the Fair Ratio to the company’s actual PE, Novo Nordisk appears significantly undervalued based on where it should be trading given its fundamentals and outlook.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Novo Nordisk Narrative

Earlier we mentioned there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is a simple but powerful tool that lets you describe your story or outlook on a company’s future by tying together your assumptions about fair value, future revenue, profit margins, and earnings into a clear forecast.

Rather than just relying on static numbers, a Narrative links your perspective about Novo Nordisk to a dynamic financial model. This shows how your expectations translate into a fair value and helps inform whether you view the stock as a buy, hold, or sell compared to the current price. Narratives make this process much more accessible. They are available to all users on the Simply Wall St Community page, where millions of investors create and update their own outlooks in real time as fresh news, earnings reports, or events come in.

This approach empowers you to react and refine your view with up-to-the-minute, relevant information, rather than relying on outdated assumptions. For example, some investors might build a bullish Narrative projecting Novo Nordisk’s fair value at the upper end of recent estimates if they are optimistic about new drug launches, while others could take a more cautious stance and assign a lower fair value due to regulatory or competition risks.

Do you think there's more to the story for Novo Nordisk? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com